Money Club for Young Adults
Rent or Own? Is One Option Better?
Is renting the same as throwing your money away?
No, of course not. Renting and owning are two choices.
What is the better choice?
It depends. One is not inherently better than the other. In Canada, about 33% of the population rents. In Germany, about 53% of the population rents. Germany is a prosperous country with a very high standard of living. Whether you rent or own really comes down to fit.
We are going to look at the choice (rent or own) through a financial lens. What is the better choice from a financial perspective really comes down to two variables.
If you rent:
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Do you save the difference (owning usually costs much more)?
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What do you earn on those savings?
If you save the difference and invest it wisely (in broad based ETF/index funds) then renting and owning are likely a toss up from a financial perspective. Especially today - with house prices at bubble highs and interest rates that have normalized at a higher level.
Do most renters save the difference and invest?
No, most renters do not save the difference. Instead they spend it. And most people (not just renters) are not financially literate when it comes to investing - so even if they do save, they tend to earn a low return (after fees). This combination puts renters behind.
Home owners simply have to pay their mortgage payment each month. A portion of their mortgage payment goes to principal - that is a form of forced savings. As a result, home ownership becomes the best option for most people - and by a wide margin.
What is the better choice for you?
It depends. Are you a good saver? Are you a good investor? If you are able to do both reasonably well then renting could be not just a good but actually a great option for you.
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It is important that you focus on things that are in your control. When you are young, aggressively save and take advantage of tax-free accounts and compounding. Your net worth will grow more quickly than you can imagine. This will help you with your decisions later in life - including those involving home ownership. ​​​
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The key point is your future will be largely shaped by the choices you make today. Chose wisely.
The Great Canadian Housing Bubble
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Owning real estate in much of Canada was a winning lottery ticket for a generation of Canadians. Why? From 2000 to 2022, Canada had an epic real estate bubble. Anyone in Canada who owned real estate during this time period won the proverbial lottery. Not because they were smart. But because they were lucky. I know because i was one of them.
Now that real estate is at bubble high prices, will it continue to be the road to riches for Canadians? No one knows. And that is the key. It might. And it might not.
Today, young Canadians have a wonderful opportunity to become financially independent/wealthy by investing in financial assets. They now have another option that wasn't available to previous generations of Canadians.
First Home Savings Account
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A registered plan designed to help first time homebuyers.
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Contribution amounts:
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Annual limit = $8,000 per year
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Lifetime limit = $40,000
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Contributions are tax deductible - this will lower your tax bill.
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Investment earnings grow tax free.
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Withdrawals used to buy your first home are tax free.
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RRSP Home Buyer's Plan
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Use up to $60,000 of your RRSP savings ($120,000 for a couple) to help finance your down payment on a home.
Pay it Forward
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Many older Canadian home owners have become millionaires over the past 20 years. Parents. Grandparents. Aunts and Uncles. Good for them.
They now have a wonderful opportunity to share their windfall and pay it forward to the next generation. Why not use some of those real estate winnings to seed a young family members TFSA/FHSA/RRSP/RESP account(s)? Of course, you would only want to do this if they were taking their financial affairs seriously. And they weren’t jerks.​​​​​​
Renting is the same as throwing money away... right?
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The short answer is 'no.' For those of you who are really interested in learning more read this blog post: click here
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Warning... the post is very long. That is because there are many layers to the topic and the author peels back all of them. The post is also US based. You will need to keep this in mind as you read.
